NBN write-down inevitable after 'disastrous' rollout, says ex-boss

The first chief executive of the NBN believes it is inevitable the value of the network will be slashed, saying tough decisions will be needed to rectify the "disastrous" rollout of the project.

Mike Quigley, head of NBN Co under the former Labor government, said the Coalition's shift to a multi-technology model and away from mass rollout of fibre-to-the-premises had hurt the potential of the service and would ultimately cost taxpayers tens of billions of dollars.

Former NBN head Mike Quigley.Credit:Louise Kennerley

Labor has indicated it is open to a write-down of the current $50 billion value, arguing the Coalition’s decisions have reduced the NBN’s value to less than the construction costs and the economics need to be fixed. If elected in May, the opposition also wants to boost access to high-speed fibre connections.

“Do I think a write-down of the NBN assets is inevitable? Yes, I think it is,” Mr Quigley said. “NBN Co and its auditors are likely to come to the conclusion that the [multi-technology mix] just does not have the revenue-generating capability or a long enough useful life to support the valuation currently on the books.”

Advertisement

However, he said a write-down would not solve the NBN’s cash flow problem posed by the “costs and limitations” of the multi-technology model.

Loading

Mr Quigley said customers would have been prepared to pay a premium for a high-performing service under Labor’s model, with fibre connections for 93 per cent of the population.

“The financial performance of NBN Co has been hit from two directions by the change to Turnbull’s MTM [multi-technology mix],” he said. “The peak funding costs have increased to $51 billion and the ability to generate revenue has been severely constrained.

“The $51 billion will be sunk into very old assets, the copper telephone cables and the pay TV cables, both of which have ended up costing much more than the Coalition and Turnbull projected.”

Mr Quigley said cost reductions in fibre-to-the-premises technology meant the original proposal could have been completed for less than the Coalition’s and delivered a higher quality service, although it may have taken a longer time to complete.

The NBN is scheduled to be finished by 2020. The current $51 billion cost of the project is made up of $29.5 billion equity investment from the government, $19.5 billion committed in the form of a loan, and $2 billion in private investment.

While a write-down would allow NBN Co to lower wholesale prices for internet providers, it would be a major blow to the federal budget bottom line. The measure can be triggered only if an audit demonstrates it is required.

Finance Minister Mathias Cormann said NBN Co was on a pathway to sustainability and revenue was projected to double over the next two years.

"While the government has discretion to forgive all or part of its loan to NBN Co, the government is not considering a write-down of its loan or equity, as there is absolutely no basis for such a write-down," he said.

A spokesman for NBN Co said the government-owned company’s assessment of its asset value was based on projected costs and cashflow in accordance with accounting standards.

“We remain very confident in our financial forecasts and strength of our business and its ability to deliver a modest commercial return of 3.2 per cent to the federal government,” the spokesman said.

Labor communications spokeswoman Michelle Rowland said the Coalition was in denial about the tough choices needed to secure the future of the NBN.

“As we have made consistently clear, Labor does not rule out the possibility that a future write-down could occur,” she said. “This acknowledges the reality that the Coalition’s inferior copper and [hybrid fibre-coaxial cable connection] network is $21.4 billion over budget.”

Mr Quigley's view on a write-down accords with a 2018 prediction from global credit ratings agency S&P and a 2016 valuation from accounting firm PwC. He said it was going to be a "long, hard slog" for a new government to figure out the right way forward.

"There is little doubt, given the worldwide trends, that the right long-term answer is still a largely fibre-based NBN. The question now is how to achieve that," he said.

A spokesman for Communications Minister Mitch Fifield said there was no evidence that users would have been prepared to pay more for a premium service, noting only 9 per cent of 4.7 million users have signed up to the highest speed service.

The spokesman also rejected suggestion that Labor's "all-fibre fantasy" could have been rolled out for less than the Coalition's plan.

"To claim that a full-fibre rollout would be cheaper is a ludicrous assertion,'' he said. ''Under Labor’s full-fibre model, they were rolling out this technology to some of the most difficult-to-connect premises, some houses costing more than $90,000 to connect."